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On How Do You Justify Consuming ExxonMobil's Oil?

Interestingly, most developed countries already tax petroleum fuels to an equivalent of $100/ton of CO2 or more (see below). Sure, these taxes are not framed as CO2 taxes, but it just goes to show that petroleum products can be sold at much higher prices than the production costs and still enjoy an almost complete monopoly on the transportation energy market. I therefore don't think Exxon has much to worry about. 

The continued inability of climate change campaigners to embrace the Pareto principle just amazes me more and more year by year. Just forget Exxon and focus all campaigning efforts on establishing a functional CO2 market. Once that is done, wonderful things can happen...

April 18, 2014    View Comment    

On Can Nuclear Power and Renewable Energy Learn to Get Along?

Agreed. From a practical decarbonization point of view, it would be much better to have a nuclear-led buildout. You can achieve faster and deeper decarbonization with very little impact on the rest of the power system. This comes out clearly in the work of Lion Hirth we discussed earlier where the optimal share of varRE keeps on decreasing with an increase in CO2 price beyond €30/ton (i.e. as decarbonization is increasingly prioritized, nuclear is increasingly favoured over solar/wind).

But from a political point of view (the one that matters at the moment), it is much better to have a renewables-led buildout. At least something is happening along this decarbonization pathway and nuclear on the grid will stifle this enthusiasm sooner. Yes, renewables lock in fossil-fuel infrastructure, but this could potentially be retroactively addressed through CCS when a high CO2 price is finally impemented a decade or so from now. 

A simultaneous nuclear-varRE buildout is therefore unnecessarily cumbersome from a practical viewpoint and unnecessarily challenging from a political viewpoint. When considering transient decarbonization pathways, nuclear and wind/solar can both play well with fossil/hydro systems but will only impede each other. 

April 16, 2014    View Comment    

On Can Nuclear Power and Renewable Energy Learn to Get Along?

Just a note, Jesse. I suspect that, like so many other things, decarbonization would also follow the famous Pareto principle, i.e. 20% of the effort will give about 80% of the result. In other words, getting a low-carbon electricity system (~100 gCO2/kWh) will be a lot easier (and faster) than getting an "ultra low" carbon electricity system (~10 gCO2/kWh). Thus, low carbon solutions that still utilize natural gas turbines like Michael suggested will be able to achieve much faster decarbonization than ultra-low carbon solutions that demand a wide range of technological breakthroughs and an entire revamp of the power sector (and, ultimately, several other sectors).

And this is exactly where the incompatibility of nuclear and wind/solar comes in. I'm sure that you can model some very attractive-sounding numbers for a steady-state nuclear-varRE system if you simply assume the cost of flexibility (storage, transmission, demand response) to be low enough. However, I don't think this exercise will be of much practical use at present. What we need is a strategy for getting from here to there which accounts for sunk investments and the contingency that non-fossil flexibility remains prohibitively expensive/impractical for decades to come.

It is well established that (in the current absence of super-cheap storage) nuclear makes the integration of moderate amounts of wind/solar significantly more expensive because of its capital intensive nature. This is part of the reason why RE-based decarbonization pathways don't include nuclear - the gradual integration of increasing amounts of politically popular wind/solar requires the flexibility of a nuclear-free grid. 

In summary, yes, of course a nuclear-varRE grid can be feasible in the distant future under the assumption of super-cheap storage/flexibility. However, building towards such a system now (i.e. aggressively building out both wind/solar and nuclear in the same system or building out wind/solar in a nuclear-heavy capacity mix) will soon become prohibitively expensive because intermittency costs of solar/wind will rise much faster, thereby only further delaying decarbonization efforts. 

April 16, 2014    View Comment    

On Can Nuclear Power and Renewable Energy Learn to Get Along?

Well, if we have super-cheap storage, we can really do lots of cool things. The issue is just that by "super-cheap" I mean batteries below $30/kWh of capacity (fully installed with no O&M, connection or disposal costs). Under the assumptions of 2000 cycles at 50% depth of discharge with a 75% efficiency and 8% cost of capital, such storage facilities would need a spread between buying and selling electricity prices of about $60/MWh to break even. I just don't know if this is possible. And then of course we are still left with the seasonal variation issue which batteries will never be able to solve. 

The nuclear/RE incompatibility (at least as I understand it) is based on a scenario of limited storage capacity. The problem is not so much that nuclear cannot ramp, it is just that it is unprofitable to operate nuclear at low capacity factors (necessary for using it as mid-load balancing capacity). When looking at the overall system LCOE, such operation would greatly increase the profile costs of RE integration because the underutilization of nuclear capacity would result in great costs. This is the reason why the optimal share of variable renewables actually decreases with an increasing CO2 price in the study I wrote about earlier.

April 15, 2014    View Comment    

On Seeking Consensus on the Internalized Costs of Coal

DATA: Average new coal plant cost: $1200/kW.

This is based on information that 76% of total planned coal capacity is to be added in India and China (with much of the rest being added in developing countries with similarly low costs). The $685/kW number in the article might a bit on the low side for China though because it was calculated shortly after the global recession and just adjusted to today's dollars through standard CPI inflation. Hence the somewhat higher coal power capacity estimate. 

April 15, 2014    View Comment    

On Seeking Consensus on the Internalized Costs of Coal


DATA: Average LCOE of coal electricity: 36 $/MWh.

This is based on average coal costs of $50/ton, average new plant costs of $1200/kW and all the other cost assumptions outlined in the article. It is consistent with Chinese coal power costs calculated by the IEA in a report which compares to gas generation in a shale-gas boom scenario. 

 

April 15, 2014    View Comment    

On Seeking Consensus on the Internalized Costs of Coal

DATA: Average free-on-rail coal cost: $50/ton.

This number is based on the IEA estimations in the article above.

April 15, 2014    View Comment    

On Climate Panel Stunner: Avoiding Climate Catastrophe Is Super Cheap, But Only If We Act Now

Some important points to highlight:

The low costs of mitigation reported in this article have been calculated under some highly idealistic assumptions: "...all countries of the world begin mitigation immediately, there is a single global carbon price, and all key technologies are available..." What do you think the chances of this happening is?

Regarding technology, it is also important to highlight the roles of CCS, bioenergy and efficiency. The scenario analysis indicates that neglecting CCS will result in a median 138% increase in mitigation costs. Neglecting bioenergy will result in a median 64% increase. It is quite possible that, neglecting both of these less desired technologies will result in very large increases due to the large emphasis on bio with CCS in the report. The report even explicitly states that many models cannot reach the 450 ppm target by 2100 without CCS.

In contrast, nuclear phase-out and low solar/wind scenarios increase the costs of mitigation by only 7% and 6% respectively. Obviously, this additional proof that the undesired technologies of CCS and bio offer much more viable decarbonization pathways than the more desired options of nuclear and solar/wind is completely opposite to what most people concerned about climate change would want to see. This will probably end up causing a lot of additional delays and economic inefficiencies.

Finally, efficiency is not mentioned that often in the summary, but, as in all low-cost climate change mitigation scenarios, it is actually the crux of the entire low-cost plan. For example, the IEA 450 ppm scenario assumes sustained reductions in energy intensity of 2.5% p.a. (a massive five times faster than that achieved in the previous decade) which leads to enormous savings in terms of avoided power infrastructure and fuel costs. This IPCC report gives data on the change in investment flows where efficiency is once again identified as the primary mitigation mechanism.  

 

April 15, 2014    View Comment    

On With Dark Clouds on the Horizon, Can Financial Innovation Keep Distributed Solar Shining?

$4.50/W appears to be the current average cost of residential solar installations in the US. Since the biggest mover in creative solar financing, SolarCity, targets this market segment, I think it is a good number to use at present. 

It might be useful to mention that I'm not against solar or wind energy, I'm just against forcing these technologies through subsidization or creative financing now that economies of scale and supply chains had already been established years ago. If there ever came a technology-forcing policy specific to CCS, I would oppose that as well.

We have an incredibly diverse set of solutions to achieve the dual mandate of encouraging developing world growth while preventing a climate or societal disaster. Having a policy framework that directly favours one solution is inefficient at best and counter-productive at worst. The interaction between EU renewable energy targets and the EU ETS is a good example.

I'll get to more CCS stuff soon. The next post is ready, I just need to get around to submitting it to TEC. 

March 15, 2014    View Comment    

On With Dark Clouds on the Horizon, Can Financial Innovation Keep Distributed Solar Shining?

Thanks Jesse. Yes, I did not phrase that very well. Of course the lower financing costs brought by the securitization of solar assets is not a form of direct subsidy, but I do feel that a 5% cost of capital significantly misprices the risks tied to rooftop solar and that this mispricing can lead to significant longer-term problems. On the one hand, we have the 1/4 value/cost ratio (example in German data which includes a lot of cheap onshore wind) and the fact that solar PV cannibalizes itself with increasing penetration due to the intermittent output. And on the other hand, we have the target market for rooftop solar - ordinary folks who uncritically think they can save money and the environment through rooftop solar - which is unable to properly evaluate these risks. 

Perhaps I'm a little over-sensitive to these matters, but I have watched several informed commentators warn about mispricing of risk in the housing market, watched the Youtube videos recommending ordinary people to take on as many mortgages as possible to capitalize on this mispricing and watched Southern European nations go on a massive spending spree when the formation of the Eurozone mispriced their credit risk. Currently, I am watching the world buy treasuries for 2.7% yield even though the Fed is the biggest buyer and the dollar is slowly losing its complete global monopoly, watching excess reserves pile up in the banking system like an overstreched dam of inflation and watching the P/E ratio of Western stock indices rise into bubble territory despite very poor fundamentals.

All-in-all, excessive intervention combined with "creative financing" has caused mispricing of far too many important things. However, for stuff like housing and the stockmarket, we can crash, write down prior investments, learn from our mistakes and try again next decade. When it comes to energy and climate, however, we don't have that luxury. Thus, even though solar is still far too tiny to have any real impact on the broader economy, I am quite concerned by this emerging trend. 

March 15, 2014    View Comment    

On With Dark Clouds on the Horizon, Can Financial Innovation Keep Distributed Solar Shining?

Clayton,

I understand your point. My point is just that the creative financing mechanisms discussed in this article and comment thread are just another way to artificially reduce the cost of solar power - especially the more expensive distributed kind. In fact, this article basically asks if exponential solar energy growth can be made to continue when direct subsidies are lessened by replacing it with another kind of subsidy: cheap financing.

As is the case with direct technology subsidization, creative financing comes with financial risks (discussed in a number of comments) and opportunity costs (the direct CO2 abatements and broader energy innovation that could have been achieved by using the money differently). These risks are induced by making something which is expensive today (rooftop solar at $4.50/W) appear much cheaper and thus ending up investing a sizable portion of society's time, energy, skills and resources in an area giving little return at a time when we can ill afford such inefficiency.

I understand that a big part of the subsidy goal is to drive cost reductions, but the effectiveness of this can also be called into question. A German think-tank has recently said that the Energiewende does not have a measurable effect on innovation when based on patent filings. 81% of the huge 2011/2012 price slump has been due to margin erosion and a polysilicon price slump resulting from large oversupply.

Soft cost reductions are generally driven by incentives that are so lucrative that the entire supply chain is flooded with customers who want solar on their roofs so that almost nothing needs to be spent on customer acquisition and other overheads. This is not a healthy situation because it features an inherent self-strenghening feedback: if incentives are good, soft costs go down, driving more demand, but if incentives are cut back, soft costs go up and further hurt demand. It therefore accentuates the highly economically inefficient boom-bust cycles typifying subsidized renewables. 

And yes, in the end we have to ask what all this effort is for. The point I tried to make in my previous comment is just that this global solar crusade (solar is easily the most subsidized form of renewable energy delivering the smallest amount of energy with the lowest capacity factor and the most pronounced intermittency) will most probably have a very limited impact even under very optimistic assumptions (at least up to mid-century). This is a very important point to consider as the ideological attractiveness of solar PV keeps on generating mechanisms to make it appear much cheaper than it actually is. 

March 14, 2014    View Comment    

On With Dark Clouds on the Horizon, Can Financial Innovation Keep Distributed Solar Shining?

Sure, if the US reduces rooftop solar costs by a factor of three, things would look a lot better in good locations - at least up to 5-10% penetration. I see the Sunshot initiative projects 14% solar by 2030 and 27% by 2050 under these cost assumptions. This would appear to be quite optimistic given that 3 decades of active wind development in the US has led to roughly 4% wind electricity on the grid ($1/W solar will put solar PV roughly where wind is today).

Thus, under the optimistic assumptions of the Sunshot initiative, the richest nation in the world with arguably the best solar/wind potential (great resources and lots of space) can ramp up solar to about 11% of total energy consumption by 2050. To me, this result just does not justify the substantial financial risk, cost reduction uncertainty, associated broad revamps to the entire electricity sector to accommodate intermittent renewables, the lock-in of flexible fossil fuel generating capacity which is less compatible with CCS, and the delaying effect that renewable energy technology-forcing has on cost-effective technology-neutral CO2 abatement policy.

March 14, 2014    View Comment